Portugal - An Investors Home Away From Home
Keywords: portugal, overseas, property, international, real estate, mortgages, investing, taxes
Many people from the UK have been attracted to Portugal by the year long pleasant climate, the affable Portuguese locals, and simplicity of taking a trip from the UK to Portugal. They have decided to make Portugal a home away from home, while some have even permanently settled in this country.
Revised planning regulations were introduced in 1993. Since that year, construction of new building has been minimized. This has led to an increase the price of the properties by as much as around 15 to 20 percent per year. But this has ensured that the new buildings are built in harmony with the surroundings.
The steeper price of land plots and the superior quality of the properties in Portugal has led to the property costs becoming higher than that in Spain. Nevertheless, older properties are still available in the interiors that can be obtained at a lower price and renovated to suit modern standards of living.
This guide aims at assisting you in deciding whether you want to make Portugal your second home
Synopsis of Popular Destinations
The settlers from the UK and Ireland have always preferred the Algarve for making purchases of their second homes in Portugal. This has resulted in intense demand and consequently the property prices in this region have escalated. Nowadays, considerable attention is being attracted by the northern areas like the Silver Coast and the Costa Verde, where tourism is still under-developed. Expansion in transportation and road and rail networks is being carried out.This guide gives brief descriptions of the areas most popular with the second home purchasers from the UK and Ireland.
The Algarve
The Algarve has been a long-standing favoured destination for holidaymakers from the UK and Ireland. Now it is one of the coveted locations for procuring a vacation house away from home.
Algarve is somewhat more expensive in terms of landed property. This is because of the unswerving sturdy demand that resulted in escalating property values. The demand is created due to the potential for consistent income from leasing due to its agreeable weather, and stringent regulations for planning that have made Algarve stand out from several other coastal areas of Spain. Nevertheless, there is something for every pocket, depending on location. The price or property in and around Lagos in the west and the suburban areas in the east are still reasonable in comparison with the inland areas. The ATT motorcade extends all along the Algarve shoreline, thus connecting the western coast of Algarve with the rest of the country. Predictable, capital appreciation in this region will be swift.
Silver Coast
Silver Coast is situated in central Portugal, between Porto and Lisbon. Marvellous architectural and religious structures, of immense historical significance, are housed at Silver Coast. The vast, virginal coastal area is dotted by isolated fishing villages. Farther inland, the rivers like Tagus waters the productive rural areas rich in livestock and a lush growth of agricultural crops. Even though the place is well connected with the rest of Portugal by the highway A1, the solitude remains unhampered.
The international real estate market has so far not extended up to the Silver Coast. As a result, property prices are still low compared to other areas of Portugal. Improved infrastructure should aid in drawing more buyers and result in prolific capital growth.
Costa Verde
Portugals Costa Verde is not the same as the Spanish province having the identical name. This region covers the districts of the Minho and the greater part of the Douro Litoral, stretching north from Portugals second largest city Porto to the Spanish frontier and some way north of Viana do Castelo.
This is a land of undulating mountain slopes and rich, productive valleys. Copious rainfall all year round ensures thriving agriculture in the valley and luscious green vegetation covers this part of Portugal. The National Park of Peneda-Geras, comprising of a diverse array of flora and fauna and offering a stunning panorama is situated on the
Costa Verde.
The lowest prices of property are available in this region, and the best bargains can be obtained in the inland areas rather than on the coastal zones.
Proceedings Involved in Buying a property
The purchase process
A verbal agreement between the vendor and the purchaser is followed by an examination of the title deeds and other documents by the solicitor of the person who will be buying the property. This is dome to ensure that all the legal documents including the caderneta urbana, which clearly delineates the propertys dimensions, borders and chargeable price, and the habitation license, which reveals its fulfillment of construction rules, are in order.
A Fiscal Number is then issued by the local tax office. An interim indenture is drawn between the buyer and the seller, which clearly mention the terms of the transaction. The buyer makes a deposit that usually amounts to 10 per cent of the purchase price.
After all the conditions detailed in the provisional agreement are fulfilled, both parties sign the final agreement in front of a Notary Public. At this point the outstanding sum is paid. The notary registers the deal with the Land Registry and records the caderneta urbana at the tax office.
Costs
In order to register your property with all the necessary government departments you will need to pay a number of charges. To account for such expenses, you need to set your budget in a manner that accommodates an advancement of 10 to 15 percent over the cost price of the property. These fees include:
Transfer tax or SISA (applicable for resale properties only). This varies according to the type and value of the property under consideration.
Value Added Tax (applied only on new constructions). This is typically 17 percent.
Notarys fees. This usually is set at around 153euro
Legal charges. This amounts to 1 or 2 percent.
Deed registration fee. This is normally 0.75-1 percent.
Declared Values
The vendors in the past, in order to reduce the capital gains tax and other charges levied in the event of a property sale, used to under-declare the actual price of a resale property. Even now some private sellers may insist on this practice. Do keep in mind that this in an illegal practice liable to rigid penalties. Even if you are able to avoid the watchful eyes of the authorities on the matter of under-declaration at the time of buying the property, it is very likely that you will be adversely affected by the difference in capital gains when you decide to sell your property.
Financial Arrangements through Mortgages
Remortgaging the UK properties is an attractive option available to consumers in need of finances for making a purchase at Portugal. A mortgage on the Portuguese property can also be arranged. However, remortgaging is favorable because releasing equity on the UK property enables the purchaser to make the payment in cash and to avert a second mortgage. Of course this benefit can be utilized only by the persons who are the outright owners of their first home in the UK.
Finances for purchase and home improvements can be attained through Portuguese lenders. UK credit suppliers will loan funds equal to 80 per cent of the cost of purchase for the second home purchase over tenure of 15years. Portuguese providers will lend the identical sum over a 5 to 25 year loan period.
Euro mortgages
The European Central Bank (ECB) set the rate of the Euro mortgages to a value that is at present lesser than the Bank of England base rate. Thus this offers a lucrative alternative. However, the currency markets are volatile. Any unforeseen alteration in the currency market may adversely affect people borrowing money via euro mortgage. The lower base rate of ECB as compared to that of the Bank of England does not warrant savings on reimbursements for persons opting for a euro mortgage. The competitive UK mortgage market provides several advantageous deals on sterling loans. Hence it is advisable to carry out a market research before applying for a loan.
Taxation
The tax system in Portugal resembles the system that is practised by all EU countries. A pact for double taxation has been made between the two nations, Portugal and the UK.
Personal Taxation as applied to Non-residents
Persons who are not residents of Portugal need to pay taxes only on income earned at that country, for instance, interest paid on deposits or savings in Portuguese banks. VAT, tax for capital gains and wealth tax may also be levied.
A yearly income tax return must be filed if the generate earnings from renting out their property. Such income is levied at a flat rate of 25 per cent. Only the expenses on repairs and maintenance can be deducted from tax, no subtraction on mortgage interest against rents is endorsed.
Personal taxation as applied to residents
People who are permanent residents of Portugal are put through taxation on global income, bequests and capital gains. A person belonging to a foreign nationality residing at Portugal for a period extending beyond 183 days all through a tax year, starting from 1st January and ending on 1st December, is regarded as a resident. They need not stay for 183 consecutive days to come under taxation.
Other taxes that are imposed on residents of Portugal include VAT, stamp tax, vehicle sales tax, taxes on real estate deals and tax on rentals.
The Local Taxes that are to be Paid
Contribuicao autarquica is a municipal property tax that is collected every twelve months as per the registered value of a property and the existing local services. This amounts to 0.8 percent for properties in rural areas and for properties in urban areas this ranges from 1.1 to 1.3 percent.
Tax on Legacies and Bequests
On condition that all apposite certifications are presented, any tax on inheritance (referred to as Stamp Tax in Portugal) need not be paid when a property is bequeathed to a close family member. Hence, you should make a detailed will after you buy a property in Portugal.
It is advisable that you engage someone who specializes in the international system of taxation to go through all the technicalities and take care that while you cover your liabilities satisfactorily, you do not end up paying more than what is required.
Fiscal Aspects
The official currency of Portugal is the euro. The current exchange rate is 1 EUR = 0.673749 GBP UK Pounds.
Foreign money in cash or travellers cheques can be freely imported but you should notify the customs department if the imported currency is more than 12000 euros.
Banks, ATMs and bureaux de exchange are in plenty in all major towns and tourist resorts. Usual hours of banking are 8:30 a.m. to 3:00 p.m., from Monday to Friday.
All major credit cards and travellers cheques are commonly accepted. It is prudent to carry the cheques in euros, American dollars or pounds sterling to evade additional charges on exchange rates.
Laws related to Passports, Visas and Residence Permits
Passports and Visas
All EU citizens mush possess a valid national identity card or passport in order to enter Portugal. It should stay valid for the period of their stay and a visit for up to 90 days is permitted. A visa is not necessary.
Residence Permit
British nationals being EU citizens do not require residence permits to live in Portugal. However, while applying for driving license, or for filing taxes, such permits may prove useful as legal residence proofs.
Inhabitation for a period of 90 days to 1 year will be covered by a short-term residence permit. A long term permit will remain valid for up to five years and following that tenure can be automatically revalidated. At the end of that period renewal can be obtained by applying in person.
The Economy of Portugal
Almost 23 billion euros of EU funds have been allocated to Portugal that has helped Portugal to enjoy one of the EUs most rapidly developing economies for quite some time. The funds have been utilized to improve the transportation services, promoting tourism and upgrading the real estate market.
Important sectors of economy have been liberalised by the privatisation of several government controlled organizations. The economy has become service based, nearly three quarters of Portugals GDP is being provided by the service sector. Almost 6 percent is contributed by agriculture, while the rest is supplied by trade and commerce. The principal export items include machinery and tools, garments, footwear, cork and wood, equipments for mining, and wine.
UK being one of Portugals chief overseas investors, relationship between the two nations is friendly and warm.
Leo Fogarty is Managing Director of overseas property portals www.Overseas-Property.ie and .co.uk . He is also a regular author for property magazines, most notably Property Gallery Magazine in Ireland and is the founder of real estate article directory, PropertyArticles.org
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